Things will change dramatically in the mortgage and home-buying world this weekend.
In September, the Department of Finance Canada announced that starting December 15, it would expand eligibility for 30-year mortgage amortizations to all first-time homebuyers and Canadians who purchase new builds. This will reduce the cost of monthly payments and hopefully help more Canadians afford housing.
Ottawa will also raise the price cap for insured mortgages from $1 million to $1.5 million on December 15. This aims to help more Canadians qualify for a mortgage with a downpayment below 20%.
This cap hasn’t been adjusted since 2012, so the feds hope that the increase will help more Canadians afford a home.
“Building on our action to help you afford a downpayment, we are now making the boldest mortgage reforms in decades to unlock homeownership for younger Canadians,” Deputy Prime Minister and Minister of Finance Chrystia Freeland said in a statement.
“We are increasing the insured mortgage cap to reflect home prices in more expensive cities, allowing homebuyers more time to pay off their mortgage, and helping homeowners switch lenders to find the lowest interest rate at renewal.”
🧵We’re introducing the boldest mortgage reforms in decades to help more Canadians buy and afford a home.
Here’s what we’re doing:
— Chrystia Freeland (@cafreeland) September 16, 2024
The government says these measures will incentivize more new housing construction to tackle the shortage. It builds on the Liberals’ 2024 Budget commitment, which took effect on August 1, allowing 30-year amortizations for first-time homebuyers buying new builds, including condos.
“A 30-year amortization for first-time homebuyers can help lower monthly payments significantly. But the extended amortization also means paying more in interest over the lifetime of the mortgage,” Victor Tran, mortgage and real estate expert at Rates.ca, told Daily Hive in an email.
“Homebuyers accessing a 30-year amortization would do well to consider accelerated payments and lump sum payments over the course of the mortgage to help alleviate the additional cost in interest.”
These new measures are in addition to the strengthened Canadian Mortgage Charter, which allows all insured mortgage holders to switch lenders at renewal without being subject to another stress test.
Ottawa says not having to requalify when renewing with a different lender increases mortgage competition and enables more Canadians with insured mortgages to switch to the best, cheapest deal.
“Everyone deserves a safe and affordable place to call home, and these mortgage measures will go a long way in helping Canadians looking to buy their first home,” stated Sean Fraser, minister of housing, infrastructure, and communities.
These policies are part of the government’s plan to build nearly four million new homes.
“These regulations are welcome news and will be very helpful for some potential homebuyers, but not all. For many, qualifying for an insured mortgage greater than $1 million will be challenging due to the large loan amount and additional insurance premium,” shared Tran.
“The homebuyer will still have to fall within the Gross Debt Service (GDS) and Total Debt Service (TDS) guidelines for insured mortgages, which are 35%/42% for a sub-680 Beacon credit score and 39%/44% for a Beacon credit score of 680 and above,” he added.
“Homebuyers eyeing an insured mortgage for a property valued at more than $1 million should ensure they are able to qualify for the size of the loan and that their GDS and TDS scores are within a reasonable range of the guidelines.”
With files from Isabelle Docto